If Properly Managed, Oil and Gas Can Help Africa Lift Millions Out of Poverty

Africa has immense natural resources, however control of these resources are mostly in the hands of foreign owned companies

AFRICANGLOBE – There is no doubt the world demand for energy has skyrocketed in the past decade, and will continue to do so in the foreseeable future.

The focus is on the African continent as it realises the potential of its natural resources. Renewed interest among policy makers and investors in the extractive industries comes in the context of the resilience of the continent against the global financial meltdown.

According to the Economic Report on Africa (ERA) 2013, Africa’s growth has been commodity-driven. Recent gas and oil discoveries are poised to generate significant revenue flows in coming years.

This represents a unique opportunity for the continent to convert its resources into bankable investments that can lift millions of citizens out of poverty.

Despite the new resource discoveries and increase in global commodity prices as well as rise in demand for African natural resources, the commodity boom has not yet translated into significant human development, economic growth and poverty reduction.

In fact, Africa continues to register some of the worst human development indicators. In some countries like Nigeria, Sierra Leone and South Sudan, oil revenues have sustained longstanding internal wars.

The recently published Africa Progress Report (APR) 2013 provides some invaluable insights. The report looks at the oil, gas and mining industries focusing on “stewarding Africa’s natural resources for all.”

It draws lessons from various African countries, from those that have been dominant in producing and exporting natural resource commodities to those that have recently discovered them.

The World Bank Commodity Price Forecast Update 2013 underscores that because “commodity prices are set to remain high,” Africa will need to leverage its natural resource wealth through good governance as well as implementation of equitable interventions in the extractive industries.

The most glaring challenge is that “natural resource revenues are widening the gap between the rich and poor.”

APR posits that in the short term, growth in the extractive industries will boost inequality because of the gaps in policy regarding revenue sharing among stakeholders, land reclamation and resettlement, potential of the industry to meet development goals as well as the variation of minerals where some may attract higher revenues than others.

In addition, there are the inevitable environmental risks associated with waste generated by exploration and mining, that have in some countries resulted in crop failure and human and animal disease, with most flagrant case being the Niger Delta in Nigeria.

Additionally, the scale of losses sustained through poor governance is not computable. A salient feature of the extractive industry is investment by multinational companies, most of which are registered offshore, are allowed to maintain accounts abroad and repatriate some of their profits.

To attract such investors, concessions, which are normally not made public, are made by governments. This has led to economic losses through corruption and secretive tax jurisdictions that assist companies to profit at citizens’ expense.

The significant exception is Ghana, which has made far reaching attempts to transform its petroleum industry. Adopting budget and revenue transparency, Ghana is taking a lead in accounting for its natural resources, an achievement that has been sustained since 2011 through the involvement of key stakeholders.

Resource-endowed countries, to conduct business in a transparent manner, have joined the Extractive Industries Transparency Initiative (EITI), a multi-stakeholder group comprised of governments, companies, civil society groups, investors and international organisations to help resource-rich countries govern their extractive industries. EITI requires “regular publication of all oil, gas and mineral revenues received by governments.”

Despite being one of the top 10 oil producing countries on the planet, Nigeria has 70 million people living in poverty.

Now, after seeing the benefits of implementing EITI in its oil industry, Nigeria has gone further to set up a sovereign wealth fund to use oil revenues to address core public finance and development issues.

Meanwhile, as resource-rich African countries generate revenues from oil, gas and mining, they should not do so at the expense of the competitiveness of other sectors of the economy.

Revenues generated from resource wealth should fund social programmes so that the benefits are cascaded to citizens.

Hannah Wang’ombe is a researcher at the Kenya Institute of Public Policy Research and Analysis.

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